History
This is a critical and exceptionally sensitive moment in history, where the results of a long string of events (some political, others economic; others cultural) combine to create the same circumstances as Carl Sagan's 1983 description of the nuclear arms race after the ABC program, "The Day After" was broadcast (I'm paraphrasing):
Imagine, if you will, a man standing in a room, up to his waist in gasoline. And in his hand is a package of matches.
That isn't meant to be funny. This is where we are now. I'm dead serious.
It doesn't only involve America's right-wing politics being hijacked by extremists and flown to Nowhere; it also involves Europe. It's not a
Black Swan moment, because too many people have warned, predicted, and described in detail (with actual data to back up their analysis) what may be about to take place, and why. What astounds me, and others, is how all that information is being ignored in a fundamental way -- as if people and governments were
incapable of making other choices.
But, possibly, the crisis points of the previous century looked the same to observers at the time: The beginnings of the First World War. The financial Crash of the late 20's and early 30's; the rise of Fascism and agitation from the Left; the Holocaust. There may have been observers who sounded their own Cassandra-like warnings then, too; I don't know.
Paul Krugman, who is quoted above, has provided a great deal of analysis about the current economic situation, and
has been saying it publicly well before the Crash (remember those heady days of the Go-Go, 'Lil' Boots' Bush years?), that the financial and political events of the last fifteen years would have real, predictable effects in the world, and
not only in America:
For some reason events in European bonds markets aren’t making big headlines. But they should be: even as the GOP does its best to destroy America’s credit, things are falling apart, with a vengeance, on the other side of the Atlantic.
The interest rate spread between Italian and German bonds is now higher than it was before the big European rescue package was announced. Since the purpose of that package was, first and foremost, to calm markets before Italy and Spain sank into self-fulfilling debt spirals, this is very bad news.
Also, German interest rates are plunging. This does not reflect greater confidence in German solvency; if anything, investors are less confident in that respect, as the potential costs of a peripheral bailout start to get reflected in credit assessments of the core economies. What this is surely about, instead, is the growing sense that European recovery is sputtering out, and that the European Central Bank — which sets short-term rates — will eventually call off or even reverse its planned rate hikes, with rates staying low for a long time.
In short, what the markets seem to be seeing is disaster on the periphery and the Japanification of the core. And I can’t say they’re wrong.
The 'peripheral' European countries (Ireland, Portugal, Spain, Italy; Greece) have been provided loans by the ECB, involving banks in the 'core' EU nations (primarily France and Germany). Two weeks ago, the ECB announced their most recent loan packages would mean Austerity programs in these 'peripheral' nations, which will actually create low growth and few jobs -- conditions exactly the opposite of what's needed to pay the loans back at all.
If any one of them can't meet their obligations (or their populations say "Fuck This!" to the New Austerity), that's the ball game. The remaining peripherals may tumble, and then the Euro -- that would effectively end the European Union in fact; its political structures aside, the EU is welded together by its common currency and not a twelve-starred flag.
The economies of the 'core' European countries -- principally France and Germany, whose banks are at the center of the loans made to the 'peripheral' EU nations -- will tumble, and suffer their own 'Japanification' -- high unemployment, low GDP growth and Zombie Banks unwinding debt. Japan's economy melted down (no pun intended) in the 1980's, due to their own massive real estate bubble, and TBTF banks carrying billions in worthless loans; their Recession lasted over ten years.
Simon Johnson writes about who’s worse — America or Europe? Basically I agree with his assessment: Europe has more fundamental problems in sheer economic terms, because it adopted a single currency without the necessary institutions to make it workable. America has a long-run budget problem, but our current mess is entirely political. Unfortunately, that doesn’t make it any easier to solve.
What’s extraordinary, though, is the paralysis that has taken over essentially the entire advanced world. America is hamstrung by its crazy right; Europe by its single currency that can be neither abandoned nor accompanied by sufficient reforms to make it work; Japan by lousy demography and monetary timidity that is now deeply ingrained in expectations.
Technology continues to advance; resource shortages are not severe enough to pose a major constraint; climate change is terrifying in its long-run implications, but hasn’t inflicted much damage yet. The only major problem we have right now is the one that was supposed to be easy to solve: a simple lack of adequate demand. And we’re totally failing in our response.
In our own country, we seem to have been afflicted by the Perfect Storm: Know-nothing Rethug Tea Partei brownshirts and tepid, rudderless Democrats. Krugman continues watching the Ship Of Fools
head straight for the iceberg:
These are interesting times — and I mean that in the worst way... In the United States, right-wing fanatics in Congress may block a necessary rise in the debt ceiling, potentially wreaking havoc in world financial markets. Meanwhile, if the plan just agreed to by European heads of state fails to calm markets, we could see falling dominoes all across southern Europe — which would also wreak havoc in world financial markets.
... policy makers seem determined to perpetuate what I’ve taken to calling the Lesser Depression, the prolonged era of high unemployment that began with the Great Recession of 2007-2009 and continues to this day, more than two years after the recession supposedly ended...
The great housing bubble of the last decade, which was both an American and a European phenomenon, was accompanied by a huge rise in household debt. When the bubble burst, home construction plunged, and so did consumer spending as debt-burdened families cut back.
Everything might still have been O.K. if other major economic players had stepped up their spending, filling the gap left by the housing plunge and the consumer pullback. But nobody did. In particular, cash-rich corporations see no reason to invest that cash in the face of weak consumer demand.
Nor did governments do much to help. Some governments — those of weaker nations in Europe, and state and local governments here — were actually forced to slash spending in the face of falling revenues. And the modest efforts of stronger governments — including, yes, the Obama administration -- in those countries “under a programme” are being forced into drastic fiscal austerity, this amounts to a plan to have all of Europe slash spending at the same time. And there is nothing in the European data suggesting that the private sector will be ready to take up the slack in less than two years.
For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great.
But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed.
...There’s an old quotation, attributed to various people, that always comes to mind when I look at public policy: “You do not know, my son, with how little wisdom the world is governed.” Now that lack of wisdom is on full display, as policy elites on both sides of the Atlantic bungle the response to economic trauma, ignoring all the lessons of history. And the Lesser Depression goes on.
It seems clear that there are people like Krugman who can see, and describe, what is happening to the Western World's economies. In The U.S., common sense is overridden by political extremism. In Europe, the fragile political union appears ready to collapse under the financial extremism of Austerity programs.
Mr. Bush squandered the surplus of the late Clinton years, yet prominent pundits pretend that the two parties share equal blame for our debt problems. Paul Ryan, the chairman of the House Budget Committee, proposed a supposed deficit-reduction plan that included huge tax cuts for corporations and the wealthy, then received an award for fiscal responsibility.
So there has been no pressure on the G.O.P. to show any kind of responsibility, or even rationality — and sure enough, it has gone off the deep end. If you’re surprised, that means that you were part of the problem...
The Tea-Partei-fueled failure to raise the debt ceiling could trigger a real panic in world financial markets, not just our own. And given the interconnected nature of the global banking system, a massive selloff in equities and the effect to businesses worldwide would at a minimum stall and reverse what little "recovery" from the Crash of 2008 has taken place.
At worst, it could create enough European banking instability to trigger a collapse of the fragile ECB loan structure, followed by a collapse of the Euro. If that happens, all bets are off.
The situation feels precariously balanced in too many places, and any one of them might be
The trigger which brings everything down. What is a real possibility is a Day Of Reckoning for 'Too Big To Fail' banks, worldwide -- and what would follow would be difficult to imagine. My guess is that here, and in Europe, we would end up with businesses quickly cutting back, or closing, and in a relatively short period -- perhaps a short as six to nine months, certainly a year -- unemployment on a scale never seen in modern times and psychologically worse than The Great Depression of the 1930's.
These are the times we live in, and since they involve money and the artificiality of value our societies are based on, no matter what happens the results will hit us right where we live. Literally.
